Govt forcing advisers to be litigation funders: AFA

AFA/phil-anderson/ASIC-levy/fees/

28 July 2021
| By Jassmyn |
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Financial advisers have become litigation funders in the way of the Australian Securities and Investments Commission (ASIC) levy, according to the Association of Financial Advisers (AFA).

The AFA said it was “disturbed” to see the expected increase in the corporate watchdog’s levy for the 2020-21 year and noted the cost per adviser had increased by 29% in the last year, and more than trebled over the last three years.

It had called on the government to remove the litigation funding element from the ASIC levy for financial advisers, or alternatively give them the benefit of any penalties that might be generated and substantially better visibility of what they had invested in.

AFA acting chief executive, Phil Anderson, said: “As predominantly small business operators, advisers are being forced to invest a large amount of money into litigation against large institutions, many of whom are no longer even in the financial advice sector.

“There is no access to any upside for advisers on this investment, and a complete lack of visibility on what they are investing in and how those investments are performing.”

Anderson said while advisers were paying for the litigation, all penalties went straight into consolidated revenue.

“The Government is forcing advisers to fund this litigation, and then taking any financial benefits that eventuate. Advisers only benefit from a partial recovery of a proportion of the costs of the case, but only where ASIC wins. This is totally unfair and unreasonable,” he said.

“Enforcement action, which largely relates to Royal Commission actions, has risen from $9.5 million to $31.4 million. In addition, the allocation of indirect costs has risen from $13.8 million to $24.5 million. Undoubtedly, the increase in the allocation of indirect costs is closely related to the increased spending on litigation funding.” 

He said the increase in enforcement and indirect costs over the last two years, on a cumulative basis, accounted for an investment in litigation funding of as much as $50 million.

“If the litigation funding element of the ASIC funding levy was structured as a managed investment scheme, advisers would be caned for recommending this to their clients,” he said.

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